SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR QUARTER ENDED September 30, 1994
COMMISSION FILE NUMBER 1-5222
M. A. HANNA COMPANY
(Exact name of registrant as specified in its charter)
STATE OF DELAWARE 34-0232435
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
SUITE 36-5000, 200 PUBLIC SQUARE, CLEVELAND, OHIO 44114-2304
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 216-589-4000
1301 E. NINTH STREET, SUITE 3600, CLEVELAND, OHIO 44114
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports
required to by filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
Common Shares Outstanding, as of the close of the period
covered by this report 35,737,883.
<PAGE>
M. A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
INDEX
PAGE
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Statements of Income -
Three Months and Nine Months Ended
September 30, 1994 and 1993 2
Consolidated Balance Sheets -
September 30, 1994 and December 31, 1993 3
Condensed Consolidated Statements of
Cash Flows - Nine Months Ended
September 30, 1994 and 1993 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Interim Financial Condition and Results
of Operations. 7-9
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 10
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<PAGE>
PART 1
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1994 1993 1994 1993
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
Net Sales $479,114 $388,059 $1,347,629 $1,135,251
Costs and Expenses
Cost of goods sold 382,826 310,695 1,076,479 908,087
Selling, general and administrative 57,659 48,115 168,839 144,773
Provision for doubtful accounts 756 808 2,167 2,974
Other income (707) (915) (1,934) (2,880)
Other expense 2,002 2,255 6,478 6,711
Interest on debt 7,178 8,086 21,521 24,780
Amortization 4,709 4,440 12,992 12,928
454,423 373,484 1,286,542 1,097,373
Income from Continuing Operations Before
Extraordinary Item and Income Taxes 24,691 14,575 61,087 37,878
Income taxes 10,682 5,997 26,878 16,680
Income from Continuing Operations Before
Extraordinary Item 14,009 8,578 34,209 21,198
Income(loss) from Discontinued Operations (1,115) 286 (1,115) 1,850
Income Before Extraordinary Item 12,894 8,864 33,094 23,048
Extraordinary Item - - (3,680) -
Net Income $ 12,894 $ 8,864 $ 29,414 $ 23,048
Net Income per Share of Common Stock
Primary
Continuing operations $ 0.45 $ 0.28 $ 1.11 $ 0.69
Discontinued operations (0.03) 0.01 (0.04) 0.06
Extraordinary item - - (0.12) -
Net income $ 0.42 $ 0.29 $ $0.95 $ 0.75
Fully diluted
Continuing operations $ 0.44 $ 0.28 $ 1.09 $ 0.69
Discontinued operations (0.03) 0.01 (0.04) 0.06
Extraordinary item - - (0.12) -
Net income $ 0.41 $ 0.29 $ 0.93 $ 0.75
Dividends per common share $ 0.125 $ 0.117 $ 0.375 $ 0.350
</TABLE>
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<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION> September December
30, 1994 31, 1993
(Dollars in thousands)
<S> <C> (c>
Assets
Current Assets
Cash and cash equivalents $ 21,577 $ 37,645
Short-term securities - 5,061
Receivables 259,966 211,242
Inventories:
Finished products 113,258 104,399
Raw materials and supplies 48,105 34,123
161,363 138,522
Prepaid expenses 3,292 4,494
Deferred taxes 22,854 22,922
Total current assets 469,052 419,886
Property, Plant and Equipment 382,005 359,880
Less allowances for depreciation and depletion 161,152 147,318
220,853 212,562
Other Assets
Goodwill and other intangibles 410,571 382,822
Investments and other assets 93,793 88,736
Deferred taxes 34,171 37,296
538,535 508,854
$1,228,440 $1,141,302
Liabilities and Stockholders' Equity
Current Liabilities
Notes payable to banks $ 303 $ 2,478
Trade payables and accrued expenses 318,725 270,566
Current portion of long-term debt 821 740
Total current liabilities 319,849 273,784
Other Liabilities 182,190 179,959
Long-term Debt
Senior notes 236,145 300,000
Other 84,653 22,103
320,798 322,103
Stockholders' Equity
Preferred stock, without par value
Authorized 5,000,000 shares
Issued 132 shares - -
Common stock, par value $1
Authorized 50,000,000 shares
Issued 42,994,268 shares at September 30, 1994 and
28,605,722 shares at December 31, 1993 42,994 28,606
Capital surplus 308,272 299,389
Retained earnings 286,934 269,026
Associates ownership trust (121,858) (115,214)
Cost of treasury stock (7,256,385 shares at September 30,
1994 and 4,864,707 shares at December 31, 1993) (102,221) (102,794)
Minimum pension liability adjustment (8,577) (8,577)
Accumulated translation adjustment 59 (4,980)
405,603 365,456
$1,228,440 $1,141,302
</TABLE>
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<PAGE>
M.A. HANNA COMPANY AND CONSOLIDATED SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
1994 1993
(Dollars in thousands)
<S> <C> <C>
Cash Provided from (Used for) Operations
Net income $29,414 $23,048
Discontinued operations 1,828 (379)
Depreciation and amortization 38,283 36,450
Companies carried at equity:
Income (4,383) (3,804)
Dividends received 5,281 2,481
Changes in operating assets and liabilities:
Receivables (41,955) (20,456)
Inventories (16,981) (1,749)
Prepaid expenses 382 2,556
Trade payables and other accruals 42,870 1,504
Restructuring obligations (8,618) (14,128)
Extraordinary item 6,034 -
Other 10,313 10,222
Net operating transactions 62,468 35,745
Cash Provided from (Used for) Investment Transactions
Expenditures for property, plant and equipment (28,792) (12,897)
Acquisition of companies, less cash acquired (53,371) (28,797)
Acquisition obligations (3,302) (3,408)
Sale of assets 13,874 3,390
Purchase of short-term securities - (5,077)
Sale of short-term securities 5,061 25,702
Other 1,636 (1,055)
Net investment transactions (64,894) (22,142)
Cash Provided from (Used for) Financing Transactions
Cash dividends paid (11,505) (10,260)
Proceeds from the sale of common stock 13,856 2,398
Increase in debt 118,944 11,680
Reduction in debt (135,269) (26,756)
Net financing transactions (13,974) (22,938)
Effect of exchange rate changes on cash 332 (1,248)
Cash and Cash Equivalents
Decrease (16,068) (10,583)
Beginning of period 37,645 54,277
End of period $21,577 $43,694
Cash paid during period
Interest $28,423 $32,751
Income taxes 11,947 13,994
</TABLE>
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<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1994
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with the instructions
to Form 10-Q and in the opinion of the Company include all
adjustments necessary to present fairly the results of operations,
financial position, and changes in cash flow. Reference should be
made to the footnotes included in the 1993 Annual Report.
The results of operations for the interim periods are not
necessarily indicative of the results expected for the full year.
Acquisitions
On March 15, 1994, the Company acquired certain assets of North
Coast Compounders, a producer of thermoplastic elastomers and
other materials and on July 19, 1994, the Company acquired
Th. Bergmann Kunststoffwerk GmbH, one of Germany's largest producers
of specialty and reinforced thermoplastic compounds. The
acquisitions have been accounted for using the purchase method of
accounting. Had the acquisitions been made at the beginning of
1993, reported results of operations would not be materially
different.
Discontinued Operations
Discontinued operations in 1993 include $1.5 million from the sale
of a former natural resources affiliate and $.3 million in
operating profits related to the Company's elastomeric membrane
roofing business. During the fourth quarter of 1993, the Company
announced it had reached a preliminary agreement to sell the
roofing business. The sale closed on August 8,1994, resulting in
an additional charge of $1.1 million in the third quarter of 1994
for additional costs incurred while obtaining government antitrust
clearance for the sale.
Net Income Per Share of Common Stock
Primary net income per share of common stock is computed by
dividing net income applicable to common stock by the average
number of shares outstanding during the period (30,950,417 and
30,829,804 for the three month periods ended September 30, 1994
and 1993, respectively, and 30,816,863 and 30,708,787 for the nine
month periods ended September 30, 1994 and 1993, respectively).
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<PAGE>
Shares of common stock held by the Associates Ownership Trust
("AOT") enter into the determination of the average number of
shares outstanding as the shares are released from the AOT to fund
a portion of the Company's obligations under certain of its
employee compensation and benefit plans. The effect of assuming
the exercise of stock options was not significant in 1994.
The number of shares used to compute fully dilutive net income per
share is based on the number of shares used for primary net income
per share increased by the number of shares reserved under earnout
provisions of purchase agreements and the common stock equivalents
which would arise from the exercise of stock options and stock
warrants. The average number of shares used in the computation
were 31,596,388 and 30,863,259 for the three month periods ended
September 30, 1994 and 1993, respectively, and 31,471,482 and
30,882,042 for the nine month periods ended September 30, 1994 and
1993, respectively.
All per share amounts have been adjusted for a three-for-two stock
split for shareholders of record on May 23, 1994 that was effected
in the form of a stock dividend.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
INTERIM FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Net sales increased $91.0 million in the third quarter of 1994 and
$212.3 million in the first nine months of 1994 compared with the
1993 periods. Sales from polymer processing businesses increased
$41.2 million and $106.7 million, respectively, due to higher unit
volumes and acquisitions made in both 1993 and 1994. Resin
distribution sales increased $29.8 million in the third quarter
and $66.0 million in the first nine months over the comparable
1993 periods due to higher unit volumes and pricing. Polymer
product sales increased from $113.5 million in third quarter of
1993 to $128.9 million in the comparable 1994 period and from
$333.3 million for the first nine months of 1993 to $368.9 million
in the first nine months of 1994 due to higher unit volumes.
Sales from other operations decreased $1.0 million in the third
quarter and $4.3 million in the first nine months compared with
1993 periods due to the sale of a business in the fourth quarter
of 1993.
Cost of goods sold increased $72.1 million in the third quarter of
1994 and $168.4 million for the first nine months of 1994 compared
with 1993 periods and corresponds with the level of sales.
Selling, general and administrative expenses increased $9.5
million in the third quarter of 1994 and $23.3 million in the
first nine months of 1994 compared with 1993 periods due to
acquisitions of polymer processing businesses in 1993 and 1994 and
higher sales activities from existing businesses. However, as a
percentage of sales, selling, general and administrative costs
decreased from 12.6% and 13.0% in the 1993 periods to 12.2% and
12.7% in the comparable 1994 periods, reflecting the Company's
ongoing efforts to manage these costs.
Interest on debt decreased $.9 million in the third quarter of
1994 and $3.3 million in the first nine months of 1994 compared
with 1993 levels due to lower average borrowings, lower interest
rates and the repurchase of $63.9 million principal amount of the
Company's Senior Notes in the second quarter of 1994. The
repurchase of the Senior Notes resulted in an extraordinary after-
tax charge to earnings of $3.7 million in the second quarter of
1994.
Income from discontinued operations in 1993 consists of $1.5
million from the sale of a former natural resources affiliate and
$.3 million in operating earnings from the Company's elastomeric
membrane roofing business. During the fourth quarter of 1993, the
Company announced it had reached a preliminary agreement to sell
the roofing business. The sale closed on August 8, 1994,
resulting in an additional charge of $1.1 million in the third
-7-
<PAGE>
quarter of 1994 for additional costs incurred while obtaining
government antitrust clearance for the sale.
Liquidity and Sources of Capital
The Company's ability to generate significant cash flows
continued in the first nine months of 1994 with $62.5 million
provided from operating activities. This amount includes the use
of $15.7 million for working capital and $8.6 million for the
payment of obligations related to prior restructurings.
Investment transactions used $64.9 million and include $28.8
million for capital expenditures, $53.4 million related to
acquisitions of businesses, partially offset by $5.1 million from
the sale of short-term securities and $13.9 million from the sale
of assets. Financing activities used $14.0 million and include
$11.5 million for dividends, $16.4 million in net reductions of
outstanding debt, partially offset by $13.9 million from proceeds
from the sale of stock.
The current ratio was 1.5:1 at September 30, 1994 and December 31,
1993. Long-term debt to total capital was 44.2% at September 30,
1994 compared with 46.8% at December 31, 1993.
During the second quarter of 1994, the Company repurchased $63.9
million principal amount of its Senior Notes in the open market,
resulting in an extraordinary after-tax charge of $3.7 million.
Funds to repurchase the Senior Notes were obtained from existing
cash flows as well as borrowings under the Company's credit
agreements, which carry a lower rate of interest than the Senior
Notes.
On June 30, 1994, the Company entered into a new revolving credit
agreement, replacing an existing credit agreement which provided
for a reducing amount of credit availability. The new agreement
provides commitments for borrowings up to $200 million through
June 1998. The arrangement provides for interest rates to be
determined at the time of borrowing based on a choice of formulas
specified in the agreement. At September 30, 1994 , there were
$28.9 million of outstanding borrowings supported by this
agreement.
The Company also had a credit agreement which provided commitments
for borrowings of up to 150 million French francs through November
1996. The agreement provided for interest rates to be determined
at the time of borrowing. During the third quarter of 1994,
borrowings under this agreement were repaid and the credit
agreement was terminated.
On July 19, 1994, the Company acquired Th. Bergmann Kunststoffwerk
GmBH. The Company entered into an acquisition financing agreement
which provided for borrowings in German marks. It is the intent
of the Company to refinance the acquisition financing in the
fourth quarter of 1994 and the first quarter of 1995.
The Company believes that its ability to generate cash flows from
operations and the availability of funds under existing credit
facilities will be sufficient to meet anticipated capital
expenditure programs, existing obligations arising from prior
-8-
<PAGE>
restructurings and acquisitions, dividend requirements and other
planned financial commitments in 1994 and throughout the term of
the existing credit facilities.
Environmental Matters
The Company is subject to various laws and regulations concerning
environmental matters. The Company is committed to a long-term
environmental protection program that reduces releases of
hazardous materials into the environment as well as to the
remediation of identified existing environmental concerns.
The Company is involved in certain legal actions and claims
arising in the ordinary course of business including lawsuits
brought by the State of Idaho in 1983 and the United States
government in 1993 seeking reimbursement from the Company and
other defendants for alleged damages to the environment and clean-
up costs for the area around the Blackbird Mine in Idaho.
Claims have been made against a subsidiary of the Company for
costs of environmental remediation measures taken or to be taken
in connection with operations that have been sold or closed.
These include the clean-up of Superfund sites and participation
with other companies in the clean-up of hazardous waste disposal
sites, several of which have been designated as Superfund sites.
In April 1994, the New Jersey Department of Environmental
Protection and Energy finalized a Record of Decision, which
incorporates the agreed upon remediation to be performed by the
Company's subsidiary at its Wharton, New Jersey site.
Reserves for such liabilities have been established and no
insurance recoveries have been reflected in the determination of
reserves. In management's opinion, such litigation and claims
will be resolved without material adverse effect of the financial
position of the Company.
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<PAGE>
PART II
Item 6. Exhibits and Reports on Form 8-K
a) No reports on Form 8-K were filed during the quarter
for which this report is filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
M. A. HANNA COMPANY (Registrant)
/s/ Thomas E. Lindsey
Thomas E. Lindsey
Controller
(Principal Accounting Officer)
Date: November 4, 1994
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> SEP-30-1994
<CASH> 21,577
<SECURITIES> 0
<RECEIVABLES> 264,686
<ALLOWANCES> 12,771
<INVENTORY> 161,363
<CURRENT-ASSETS> 469,052
<PP&E> 382,005
<DEPRECIATION> 161,152
<TOTAL-ASSETS> 1,228,440
<CURRENT-LIABILITIES> 319,849
<BONDS> 320,798
0
0
<COMMON> 42,994
<OTHER-SE> 362,609
<TOTAL-LIABILITY-AND-EQUITY> 1,228,440
<SALES> 1,347,629
<TOTAL-REVENUES> 1,347,629
<CGS> 1,076,479
<TOTAL-COSTS> 1,076,479
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,167
<INTEREST-EXPENSE> 21,521
<INCOME-PRETAX> 61,087
<INCOME-TAX> 26,878
<INCOME-CONTINUING> 34,209
<DISCONTINUED> (1,115)
<EXTRAORDINARY> (3,680)
<CHANGES> 0
<NET-INCOME> 29,414
<EPS-PRIMARY> .95
<EPS-DILUTED> .93
</TABLE>
